Investors and homeowners in Taiwan should be aware of the newest law amendments in 2021 as their tax liabilities may have changed. To put the breaks on short-term market speculations in house and land (H&L) transactions and strengthen healthy market developments, the Taiwan Legislative Yuan had passed the latest Income Tax Law Amendment on April 9, 2021, effective as of July 1, 2021, to target on the houses, their bases, as well as land transactions with construction permits, obtained after January 1, 2016 by individuals and/or profit seeking enterprises, to the effect that their taxable subjects, tax rates and taxable bases are now amended. This article summarizes the new impacts on the individuals and profit seeking enterprises for domestic and foreign entities in Taiwan.

To increase the holding time periods applicable to the individuals levying high tax rates for short -term speculations

1. The old Item 1, Paragraph 3, Article 14-4 Income Tax Law stipulated on the tax rates applicable to various holding periods for H&L transactions by the individuals residing in Taiwan to provide: (a) 45% if within one year; (b) 35% if within two years; (c) 20% if over two years but within ten years; (d) 15% if over 10 years. Now the new Law changes as follows: (a) 45% if within two years; (b) 35% if over two years but within five years; (c) 20% if over five years but within ten years; and (d) 15% if over ten years.


2. The old Item 2, Paragraph 3, Article 14-4 Income Tax Law stipulated on the tax rates applicable to various holding periods for H&L transactions by the individuals residing outside of Taiwan to provide: (a) 45% if within one year; and (b) 35% if over two years. Now the new Law changes as follows: (a) 45% if within two years; (b) 35% if over two years.


3. As such, This Amendment focuses on adjusting the holding period requirements for H&L transactions to the extent that in the case of individuals residing in Taiwan, the 45% tax rate is expanded to apply two years or less holding period; the 35% tax rate is expanded to apply to two to five years holding period; and the 20% tax rate is expanded to apply to five to ten years holding period. In the case of individuals not residing in Taiwan, the 45% tax rate is expanded to apply to less than two years holding period; and the 35% tax rate is expanded to apply to over two years holding period. The tax rates applicable to individuals residing in Taiwan holding H&L after transactions for over ten years or within one year shall remain unchanged, and shall remain 15% and 45% respectively. Also, the tax rates applicable to individuals not residing in Taiwan holding H&L after transactions over two years or within one year shall be the same as before, which shall be 35% and 45% respectively.

Profit Seeking Enterprises, as individuals, shall be taxed by different tax rates based on respective H&L holding periods

1. In the case of profit seeking enterprises headquartered in Taiwan, the old law had fixed a uniform 20% tax rate for all H&L transaction income tax without differentiating among various holding periods. While the new law, according to Item 1, Paragraph 2, Article 24-5, provides that in the case of a profit seeking enterprise headquartered in Taiwan, the tax rates shall be, depending on various holding periods of H&L after the transactions, as follows: (a) 45% if within two years; (b) 35% if over two year but within five years; (c) 20% for over five years; (d) 20% if within five years due to transactions over involuntary causes (see below).
2. In the case of profit seeking enterprises headquartered outside Taiwan, Paragraph 3, Article 24-5 of the old law had imposed different tax rates based on various holding periods：(a) 45 % if within one year; (b) 35% if over one year. While Paragraph 2 of Article 24-5 of the new law provides that: (a) 45% if within two years; (b) 35% if over two years.
3. Therefore, the new law has cast significant impacts on the profit seeking enterprises headquartered in Taiwan so far as various H&L holding periods are concerned, which now shall determine the applicable tax rates, knowing that the old law did not make a difference in that regard. According to the old law, the profit seeking enterprises headquartered outside Taiwan are treated the same as the individuals not residing in Taiwan for this purpose: 45% if within two years; while 35% if over two years.

Expansion of the scope of the taxable subjects for H&L transactions

1. Paragraphs 2, 3 of Article 24-4 of the new law has added two extra transactions to become taxable subjects under H&L income tax requirements:
   (a) In the case of transactions of a presale house and its land base: Paragraph 2 of Article 4-4 of the new law provides that transactions of a presale house and its land base shall be treated the same as H&L transactions so far as taxable subjects are concerned.
   (b) In the case of transactions by company stocks or capital contributions, Paragraph 3 of Article 4-4 of the new law requires that if a transaction involves company stocks or capital contributions of a profit seeking enterprise, it shall be deemed an H&L transaction when meeting following conditions:
   (i) An individual or profit seeking enterprise owns directly or indirectly majority company stock or capital contribution of a specific profit seeking enterprise.
   (ii) Over 50% of the value of company stock or capital contribution of a profit seeking enterprise is represented by H&L in Taiwan.
   (iii) The company stock or capital contribution is traded by an individual or profit seeking enterprise mentioned above.
   (iv) Company stocks which are publicly traded in Taiwan shall not apply.
2. In view of the fact that the old law had failed to include incomes derived from presale house/land base transactions and majority share transactions resulting in H&L transfers as taxable incomes, Paragraph 3 of Article 4-4 of the new law has targeted the two transactions mentioned above as taxable H&L transactions to avoid taxation loopholes.
3. In addition, in the case where an income tax is levied due to a share transfer subject to the H&L taxation pursuant to the new law, it should further be consolidated to be incorporated into personal basic income pursuant to Item 3-1, Paragraph 1, Article 12 of the Basic Income Tax Rates Statute. In case a discrepancy occurs between personal basic income and general income, , Article 4 of the Basic Income Tax Rates Statute shall apply to determine whether basic income tax shall be levied.

The new law has adjusted the tax rates applicable to short-term holding of house and land in the case of individuals in or outside of Taiwan and profit seeking enterprises headquartered in or outside of Taiwan, while the tax rate changes to profit seeking enterprises headquartered in Taiwan are the most noticeable. According to the new law, several tax rates apply based on different holding periods, which has changed the fixed 20% tax rate under the old law. Meanwhile, the new law has expanded the scope of taxable subjects to cover pre-sale transactions and qualified company stock/capital contribution transactions, so that they are all regarded as house and land transactions under the new law. In addition, the new law allows a deduction of the total land price rise from the house and land transaction income to avoid double taxations or tax evasion practices. Moreover, the new law has added a few exceptions to house and land transactions, which allow a few lower tax rates.